By correspondence dated September 7, 2005, Anthem Blue Cross and Blue
Shield ("Anthem") proposed rate increases ranging from 10.0%
to 16.5%, depending on the benefit design of the plan offered. On October
19, 2005, Anthem submitted a revised filing, in which the increases range
from 9.0% to 16.0%. The weighted average proposed rate increase is 13.0%.
reduced from 13.5% in the original filing.

II. PROCEDURAL HISTORY

The Superintendent of the Maine Bureau of Insurance ("the Bureau")
determined that it would be in the best interest of the public to hold
a hearing and, by Order dated September 14, 2005, delegated full authority
to Deputy Superintendent Judith M. Shaw to conduct the hearing and render
a final decision in this matter. Pursuant a September 16, 2005 Notice
of Pending Proceeding and Hearing, Deputy Superintendent Shaw Ordered
that hearing to be held at 9:00 a.m. on October 17, 2005 in the Kennebec
Room of the Maine Department of Professional and Financial Regulation
in Gardiner, Maine. The
Notice outlined the purpose of hearing, set a deadline for intervention
and explained hearing procedure.

On September 26, 2005, the Department of the Attorney General filed
a motion for intervention pursuant to 5 M.R.S.A. 9054(1). There was no
opposition to that motion, which the Deputy Superintendent granted.

On September 28, 2005, Deputy Superintendent Shaw issued a Procedural
Order, in which she identified the parties as Anthem and the Attorney
General and, in accord with Maine Bureau of Insurance Rules, Chapter 350,
§ 2(A)(1), established procedures for the conduct of this proceeding.
Subsequent to September 28, 2005, the parties and the Bureau of Insurance
engaged in discovery.

With its original filing, Anthem requested confidentiality of certain
information. Anthem asserted that the information is proprietary, because
it reveals unique methodologies and strategies, includes internal financial
data and would benefit competitors unfairly if disclosed. Following her
review of Anthem's request for confidentiality, the Deputy Superintendent
issued a Protective Order on October 3, 2005
and amended that Order October 7, 2005. The Amended Order established
substantive and procedural safeguards for the information accepted as
confidential pursuant to Bureau of Insurance Bulletin 168 and 1 M.R.S.A.
§ 402(3)(B).

On October 17, 2005, the Deputy Superintendent held a public hearing.
Assisting her were Richard Diamond, Life and Health Actuary for the Bureau;
Mary Hooper, Actuarial Assistant for the Bureau; and James Bowie, Assistant
Attorney General. In support of its filing, Anthem provided testimony
by Rick Spiegel, Actuary; George Siriotis, Regional Vice President of
Sales for the Individual Markets Division of Anthem Blue Cross and Blue
Shield's Northeast Region; and Harry Page, Finance Account Executive for
Anthem Health Plans of Maine. The Department of the Attorney General provided
testimony from Dale Hyers, Actuarial Consultant for the Wakely Consulting
Group. One member of the public, Clyde Wheeler, Esq., attended the hearing
and presented an unsworn statement. The Deputy Superintendent, without
objection from either party, took official notice of all of the filings
made by the parties as of the date of the hearing, including discovery
requests and responses. Additionally, the Deputy Superintendent took official
notice of all written comments received by the Bureau from persons other
than the parties.

The record was held open following the close of the hearing to allow
for a revised filing, which Anthem made October 19, 2005, and submission
of additional evidence responsive to requests by the Deputy Superintendent
at hearing. After receipt of the additional information, the Deputy Superintendent
requested that Anthem provide further additional information clarifying
its initial post-hearing submission. The record was closed on November
3, 2005 following receipt of the clarifying information.

III. STANDARD OF REVIEW

Anthem bears the burden of proving by a preponderance of the evidence
that the proposed rates are not inadequate, excessive, or unfairly discriminatory.
In addition, Anthem must prove that proposed rates meet loss ratio standards
set forth in 24-A M.R.S.A. § 5004, rating restrictions of 24-A M.R.S.A.
§ 5011, requirements of Bureau of Insurance Rules, Chapter 275 and
all other requirements of the Maine
Insurance Code and regulations promulgated thereunder.

Mr. Spiegel testified that Anthem prepared the filing in accordance with
accepted actuarial practices and that the proposed rates are reasonable
relative to the benefits provided.

There is no current enrollment in Plan H or in High Deductible Plan
J with drug benefits. These plans are not currently offered by Anthem,
and issuance of those plans is prohibited after January 1, 2006. Therefore,
there is no reason for Anthem to file or for the Bureau approve rates
for those plans.

B. Part B Hospital Coinsurance

Anthem based its [text deleted]1 trend projection for the
Part B Hospital Coinsurance on its own experience. The second half of
2004 reflected trends of [text deleted] after several years of [text deleted]
trends. The Attorney General suggests that the recent [text deleted] in
claims in the fall of 2004 for Part B Hospital Coinsurance leading to
trends in the range of [text deleted] should be viewed as an aberration
and more weight should be given to the earlier [text deleted] trends.
Anthem observed [text deleted] in the trend for this benefit, as opposed
to the Part B Physician Coinsurance trend that has [text deleted]. It
is reasonable to see, as Anthem does, more recent data as reflecting possibly
deteriorating experience.

C. Prescription Drug Coverage

Anthem based its trend projection on a combination of its own experience
and on reported double-digit industry trends, arguing that the result
of the introduction of Medicare Part D is unpredictable but is likely
to lead to a significant increase in trends because most individuals currently
using the drug benefit will stay with the Companion Plan coverage. The
Attorney General agreed that this benefit component will be of
decreasing significance as members migrate to Medicare Part D plans but
postulated that most members would enroll in the better Part D coverage.
The actual migration is difficult to predict. There is some indication
that individuals find the Part D enrollment confusing and may prefer to
stay with what they have been using for drug coverage. Anthem does not
expect generic utilization to rise much more, because its Maine Medicare
supplement business already utilizes a higher number of generics than
other states. The trend used by Anthem is reasonable.

D. Prescription Drug Rebates

The revised filing provided by Anthem on October 19, 2005 applied a
credit to the rates, discounting the pure premium for all plans to account
for rebates attributable to the Companion Plan line of business projected
for 2006. The credit was based on the percent of rebates earned for 2004
for the Companion Plan products applied to the anticipated 2006 pharmacy
claims and enrollment projections for 2006. Membership in Plans I and
J is projected to decrease substantially in 2006, due to thc implementation
of Medicare Part D. Accounting for the projected reduction in membership
resulted in the projected rebates.

In its response to post-hearing inquiries from the Bureau, Anthem explained
that the credit was spread over all plans because many members formerly
in Plans I and J will leave due to Medicare Part D. However, the large
majority of policyholders were never in Plans I or J. Furthermore, past
coverage is not relevant, since the rebates being credited are those earned
in 2006. While this rationale would make sense for rebates earned in earlier
years, it is not relevant to rebates earned in 2006. The credit for 2006
rebates should only be applied to those members generating the rebate
due to prescription drug coverage in Plans I and J rather than spread
among all members. Spreading it across all plans as proposed by Anthem
is not only inequitable, but it also will result in the aggregate amount
of the credit being incorrect, to the extent Anthem's estimate of how
many policyholders will stay in the plans with drug benefits is incorrect.

Anthem has not factored rebates earned in 2005 and earlier years into
the development of proposed Companion Plan rates. In last year's hearing
on its Companion Plan rates, Docket No. INS 04-620, Anthem erroneously
stated that the Companion Plan was ineligible for rebates. It is not appropriate
for Anthem to profit2 from this error or from its failure to
account for rebates in earlier filings. One alternative would be to refund
those rebates to those who paid premiums for plans with drug benefits
in each prior year. However, this would likely be administratively difficult,
if not impossible. A more practical alternative is to credit those rebates
in determining the 2006 rates. Since a large majority of those who currently
have plans with drug benefits are expected to drop them in 2006, the most
equitable way to distribute credit for the rebates is to spread it over
all plans as a percentage of claim costs.

E. Investment Income

Anthem's evidence was that investment income on assets does not get
allocated to the various lines of business. Anthem's evidence was that
it does recognize interest earned during the time between receipt of premium
and claim payment and that the interest is attributed to the Companion
Plan customer. The Attorney General argued that investment income on revenue
is another source of profitability to Anthem that is not properly reflected
in the rates. Anthem's position is correct. As stated by Mr. Page at hearing,
much of the company's capital was paid in by its parent company and not
by its policyholders.

F. Administrative Expenses

The administrative expense charge is based on Anthem's cost allocation
down to the product level. Total administrative expenses have decreased
but the PMPM charge increased due to declining enrollment. The Attorney
General questioned the level of complexity and cost of adjudicating Medicare
supplement claims, given that Anthem is also a claims administrator for
Medicare. In response, Anthem mentioned other factors, including level
of customer service, related to this block that increase administrative
expenses relative to other products. There are also claims that must be
processed manually. The revised filing provided by Anthem on October 19,
2005 reduced the originally filed administrative expenses for the portion
of the charge associated with the Anthem Prescription Management (APM)
administrative expenses to correspond with the reduction in membership
in Plans I and J, reducing the administrative expense percent of claims
component. Thc reduced amount is reasonable.

G. Profit and Risk Margin

The Attorney General argued that the financial forecasts in Exhibit
VI are unreliable and overstate Anthem's need for the requested profit
and risk margin, based on Mr. Hyers's analysis of and concern with inconsistencies
in paid claims and a reliance on estimated claim liability that results
in inflated loss ratios and higher than depicted profits. Anthem responded
that rates were based on year-end 2004 claims data, which is 98% complete.
Anthem also stated that the 2005 claim data is not relevant to rates but
only to financial statements. Anthem stated that no extra margin was added
to account for member downgrade in coverage with the introduction of Medicare
Part D in 2006.

The Attorney General argued that if costs are relatively higher in Maine,
as Anthem has stated, then claim costs actually are more predictable with
more experience and that lowers risk. The Attorney General asserted that
drug rebates and investment income generated in prior years but not credited
provides a basis for holding the profit margin at 3%.

Anthem argued that their need for a higher profit charge is based on
industry practice and shareholder expectations. Other factors to consider
in determining an appropriate margin are the degree of uncertainty in
the projections of claims and administrative expenses, the competitiveness
of the market and the need to keep premiums as affordable as possible.
Weighing all relevant factors, the appropriate margin for profit and risk
in this filing is 3% before federal income tax.

V. FINDINGS AND
CONCLUSIONS

On the basis of a preponderance of the credible evidence before her,
the Deputy Superintendent makes the following findings and conclusions:

For reasons set forth above in DISCUSSION, Part A, rates cannot be
approved for Plan H or for High Deductible Plan J with drug benefits.

For reasons set forth above in DISCUSSION, Part D, the credit for
2006 prescription drug rebates should be applied entirely to the rates
for the plans that contain prescription drug benefits.

For reasons set forth above in DISCUSSION, Part D, a credit for 2001
- 2005 prescription drug rebates should be spread over all plans as
a percentage of claim costs.

For reasons set forth above in DISCUSSION, Part G, the appropriate
combined margin for profit and risk in this filing is 3% before federal
income tax.

With the exception of the four items noted above, the rates in the
revised filing are not inadequate, excessive, or unfairly discriminatory.

Revised rate filings may be submitted for review and shall be APPROVED,
effective January 1, 2006, if found by the Deputy Superintendent to
be consistent with the terms of this Decision and Order.

VII. NOTICE OF APPEAL RIGHTS

This Decision and Order is a final agency action within the meaning
of the Maine Administrative Procedure Act, 5 M.R.S.A. § 8002(4).
It may be appealed to the Superior Court in the manner provided for in
24-A M.R.S.A. § 236, 5 M.R.S.A. §§ 11001 through 11007
and M. R.Civ. P. 80C. Any party to the proceeding may initiate an appeal
within thirty (30) days after receiving this Decision and Order. Any aggrieved
non-party whose interests are substantially and directly affected by this
Decision and Order may initiate an appeal within forty (40) days of the
date of the Decision and Order. There is no automatic stay pending appeal.
Application for a stay must be made in the manner provided for in 5 M.R.S.A.
§ 11004.

1 The redacted items in this section are
included among those materials found confidential by the Deputy Superintendent
and subject to a protective order issued in this proceeding.2 While the Companion plan was not profitable in each of the
earlier years 2001-2005, the period for which rebates were earned from
Anthem Prescription Management but not credited in rates, it was profitable
over the period as a whole.